The Bhutanese Leading the way.
Bhutan’s National Credit Guarantee Scheme (NCGS) was launched in 2020 to provide easier access to loans, backed by government guarantees. While the scheme has helped foster innovation and employment, the growing number of Non-Performing Loans (NPLs) raises concerns about the long-term sustainability of such government-backed programs.
Launched in 2020, NCGS aimed to stimulate economic growth by providing affordable financing to businesses across various sectors, particularly those focused on exports, import substitution, and technological innovation.
The Minister of Finance, Lekey Dorji, said, “Loans were made available for businesses that boost exports, reduce or substitute imports, promote innovation and technology and create employment. Loans under the Cottage and Small category did not require any collateral and start-ups under the CSI category were eligible for 100 percent debt financing under the NCGS.”
As of December 2024, the total amount of NPLs has reached Nu 169.74 million, about 19.4% of the total loans disbursed.
Banks participating in the scheme, such as the Bank of Bhutan (BOB), Bhutan Development Bank Ltd. (BDBL), and National CSI Development Bank (NCSIDB), have been left grappling with the task of recovering bad debts.
With no collaterals, the loans are exposed to risk, while the agreement ensures 3 years guarantee and securitization of project assets thereafter, the project assets do not cover the risk, and in most cases, there are no adequate project assets given the nature of the projects supported under the scheme
The banks also find it problematic to charge sheet such cases to the court due to lack of collaterals, and the guarantors not turning up for restructuring, follow through, and negotiation
While efforts to restructure loans and engage in settlements are ongoing, the issue of moral hazard and a lack of sufficient collateral for most projects is proving to be a significant barrier to recovery.
Lyonpo Lekey Dorji said that while NCGS has achieved some positive results, such as import substitution and job creation, its short duration of just three years might have been too little a time to accurately gauge the success of long-term projects.
